Abstinence is effective, and the only sure fire way to prevent pregnancy and STIs, it's just that all creatures have an overwhelming urge to have sex. However, I agree that 2 is the best way, because abstinence is a conclusion you may reach by considering how sex can affect someone, and you can teach it alone because it builds off of a comprehensive knowledge of sex. Furthermore, it is a choice, and those who don't choose to be abstinent need to know how to protect themselves from STIs and such.

Good parenting! I got the sex talk when my mom was pregnant with my little sister (I was three), and she was anatomically correct and factual. I think that was a great way to do it. I didn't feel weirded out and my three-year-old curiosity about where babies came from was satisfied. I've been the same way with my kids. I think if you are secretive and misleading and uncomfortable, that transfers to your children's current and future beliefs (and emotions) regarding sex.